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Inverted Gravity

Author

Listed:
  • James E. Anderson
  • Mario Larch
  • Yoto V. Yotov

Abstract

We invert structural gravity to recover trade cost changes delivering targeted outcomes. For attainable welfare targets, one instrument per target yields a unique solution. At unchanged producer prices and to first order, each instrument must change by the welfare target divided by its own expenditure share; the required domestic change is about the size of the target, while the import change is several times larger. Inverting observed trade flows gives a separate trade cost change for each of the two directions in which a pair of countries trades. Applications to NAFTA and world trade illustrate the benefits of our approach.

Suggested Citation

  • James E. Anderson & Mario Larch & Yoto V. Yotov, 2026. "Inverted Gravity," NBER Working Papers 35897, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35897
    Note: ITI
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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